Revenue Commissioners
SP – IT/3/07
Income Tax
Statement of Practice
SP - IT/3/07
Pay As You Earn (PAYE) system
Employee payroll tax deductions
in relation to
non-Irish employments exercised in
the State.
September 2007
Page 1 of 41
Revenue Commissioners
SP – IT/3/07
Table of Contents
Chapter
1.
Page
Introduction
1.1
1.2
1.3
2.
5
5
6
Employers – Registration for PAYE system purposes
8
Employees – Obtaining a PPS number and notifying
the Revenue Commissioners of their
employment
8
2.1
8
2.2
3.
The Revenue Commissioners
Employee Payroll Tax Deductions
1.2.1 The Pay as You Earn (PAYE) system
1.2.2 Position prior to 31 December 2005 as
regards non-Irish sourced employment
income and the PAYE system
1.2.3 Position with effect from 1 January 2006 as
regards non-Irish sourced employment
income and the PAYE system
The Remittance Basis of Taxation
1.3.1 Remittance Basis of Taxation – General
1.3.2 Remittance Basis of Taxation – Impact on
employment income up to 31 December
2005
1.3.3 Remittance Basis of Taxation – Impact on
employment income with effect from 1
January 2006
1.3.4 Remittance Basis of Taxation – Mixed Funds
Accounts
Employers
2.1.1 Registration for PAYE system purposes
2.1.2 Failing to register with the Revenue
Commissioners
Employees
2.2.1 Obtaining a Personal Public Service number
(PPS number)
2.2.2 Applying to the Revenue Commissioners for a
determination of tax credits and rate bands
8
Application of the PAYE system to non-Irish sourced
employments
10
3.1
3.2
10
10
3.3
3.4
Statutory position with effect from 1 January 2006
What happens if a non-Irish employment is exercised
wholly in the State?
What happens if a non-Irish employment is exercised
partially in the State and partially outside the State?
PAYE provisions
3.4.1 Section 985C TCA 1997 - PAYE: Payment by
an intermediary
3.4.2 Section 985D - PAYE: employee of a nonresident employer
3.4.3 Section 985E - PAYE: employment not wholly
exercised in the State
3.4.4 Directions under section 985E(3) TCA 1997
3.4.5 Section 985F - PAYE: mobile workforce
Page 2 of 41
10
11
Revenue Commissioners
4.
SP – IT/3/07
Temporary Assignees - Release for employers from the
obligation to operate the Irish PAYE system
15
4.1
4.2
15
15
General
Temporary Assignees
4.2.1 Short term business visits to the State for not
more than 60 working days
4.2.2 Simultaneous deductions under the Irish
PAYE system and under a tax deduction
system of another tax jurisdiction.
4.2.3 Short-term business visits to the State of not
more than 30 days - non-treaty countries
5.
6.
7.
Internationally Mobile Employees / Tax Equalisation
19
5.1
5.2
5.3
5.4
19
19
19
21
Overview
Tax equalisation / Tax protection / Hypothetical Tax
Methods to give effect to tax equalisation
Refunds of tax
Social Security - Pay Related Social Insurance (PRSI)/
Health Contributions
22
6.1
6.2
6.3
6.4
6.5
6.6
22
22
22
22
23
23
Overview
Collection of PRSI
EU Regulations / Reciprocal Arrangements
Deduction of PRSI
Contacting the Department of Social & Family Affairs
Health Contribution
6.6.1 Deduction of the Health Contribution where
the employer qualifies for release from the
obligation to operate PAYE
6.6.2 Deduction of the Health Contribution in other
cases
Pension Contributions
24
7.1
7.2
7.3
7.4
7.5
7.6
7.7
24
Background
Relief under Double Taxation Agreements
Migrant Member Relief
Contributions to overseas pension schemes
Revenue Pensions Manual – Chapter 17
Limits
Further information
24
25
26
26
26
8.
Miscellaneous
27
8.1
8.2
8.3
8.4
27
27
27
27
Bonuses
Exchange rates
Foreign Service Relief – termination of employment
Permanent Establishment
Page 3 of 41
Revenue Commissioners
SP – IT/3/07
Appendix
A
Frequently Asked Questions on the Personal Public Service
Number [Extract from the Department of Social & Family
Affairs website]
Appendix
B
Extract from Article 18 of the Ireland-USA Double Taxation
Agreement
Appendix
C
Extract from Article 17A of the Ireland-UK Double Taxation
Agreement
Appendix
D
Migrant Member Relief
Appendix
E
Overseas Pension Schemes [Extract from Chapter 17 of
Revenue Pensions Manual]
Appendix
F
Criteria and Guidelines on Permanent Establishment (PE)
Page 4 of 41
Revenue Commissioners
SP – IT/3/07
Chapter 1
Introduction
1.1
The Revenue Commissioners
The tax system in Ireland is under the care and management of the
Revenue Commissioners (who are sometimes known as ‘Revenue’).
1.2
Employee Payroll Tax Deductions
1.2.1 The Pay As You Earn (PAYE) system
The PAYE system is the statutory system used by employers (and certain
other persons – see paragraph 3.4) for deducting and remitting to the
Revenue Commissioners the income tax due on employees’ income.
Where the income of employees is within the scope of the Irish PAYE
system, employers and other relevant persons (see Chapter 3) (a)
deduct the relevant amounts of income tax due from the employees;
and
(b)
remit such amounts deducted to the Revenue Commissioners.
For further information on the operation of the PAYE system, see:
Revenue’s Employers Guide to PAYE - available on Revenue’s website
www.revenue.ie
Note - There are certain instances where the PAYE system need not apply
in respect of employment income – see Chapter 4.
Where Irish Social Insurance contributions [known as Pay Related Social
Insurance (PRSI)] and the Health Contribution are due, such contributions
are also collected under the PAYE system – see Chapter 6.
1.2.2 Position prior to 31 December 2005 as regards non-Irish sourced
employment income and the PAYE system
Prior to 31 December 2005, the income from a non-Irish sourced
employment was not within the scope of the Pay As You Earn (PAYE)
system for payroll deductions at source even if taxable in the State in the
hands of the individuals.
In addition, certain individuals could avail of what is known as the
remittance basis of taxation (see paragraph 1.3 below).
1.2.3 Position with effect from 1 January 2006 as regards non-Irish
sourced employment income and the PAYE system
With effect from 1 January 2006 –
(a)
the income of a non-Irish sourced employment attributable to the
performance in the State of the duties of that employment is
chargeable to income tax under what is known as Schedule E and is
within the scope of the Pay As You Earn (PAYE) system of
deductions at source;
(b)
the income of a non-Irish sourced employment attributable to the
performance outside the State of the duties of that employment,
whilst it may be chargeable to Irish tax in the hands of the
Page 5 of 41
Revenue Commissioners
SP – IT/3/07
employee, is not within the scope of the Pay As You Earn (PAYE)
system of deductions at source.
1.3
The Remittance Basis of Taxation
1.3.1 Remittance Basis of Taxation - General
Where non-Irish income is within the charge to tax in the State and an
individual who is liable to pay the income tax due on that income under
what is known as Case III of Schedule D is either –
(a) not Irish domiciled, or
(b) being an Irish citizen, not ordinarily resident in the State,
he/she may avail of what is known as the remittance basis of taxation as
regards such non-Irish income (but excluding United Kingdom income
because the remittance basis of taxation does not apply to income arising
in the UK).
In brief, the remittance basis means that, for the individuals referred to at
(a) and (b) above, the amount of the non-Irish and non-UK sourced
income liable to Irish income tax under Case III of Schedule D is confined
to the amount that is remitted to, or brought into, the State in the year of
assessment.
1.3.2 Remittance Basis of Taxation - Impact on employment income up
to 31 December 2005
Up to 31 December 2005, the income from a non-Irish sourced
employment, where chargeable to tax in the State, was chargeable under
Case III of Schedule D and qualified for the remittance basis of taxation
(assuming, of course, as outlined in paragraph 1.3.1 above, that the
employee was either not Irish domiciled or, being an Irish citizen, was not
ordinarily resident in the State).
1.3.3 Remittance Basis of Taxation - Impact on employment income with
effect from 1 January 2006
With effect from 1 January 2006 –
(a) the income of a non-Irish sourced employment attributable to the
performance in the State of the duties of that employment no longer
qualifies for the remittance basis of taxation as it is now chargeable to
income tax under what is known as Schedule E [and is within the
scope of the Pay As You Earn (PAYE) system of deductions at source]
whether or not remitted to the State;
(b) the income of a non-Irish sourced employment attributable to the
performance outside the State of the duties of that employment,
remains, where chargeable to tax in the State, chargeable under Case
III of Schedule D and qualifies for the remittance basis of taxation
(assuming, of course, as outlined in paragraph 1.3.1 above, that the
employee was either not Irish domiciled or, being an Irish citizen, was
not ordinarily resident in the State).
Page 6 of 41
Revenue Commissioners
SP – IT/3/07
1.3.4 Remittance Basis of Taxation - Mixed Funds Accounts
Mixed capital and income accounts
Any remittances out of a fund containing capital and income are treated as
first coming out of the income part of the fund until such income is fully
remitted (see Scottish Provident Institution v Allen – 4 TC 409).
Mixed income accounts
A mixed income account is an account containing
(a) income that was taxed under PAYE; and
(b) income that not taxed under PAYE and in respect of which the
remittance basis of taxation might apply.
In cases where the remittance basis of taxation might apply, any
remittances to the State from a mixed income account shall be treated as
first coming out of income that was already taxed at source under the Irish
PAYE system.
Page 7 of 41
Revenue Commissioners
SP – IT/3/07
Chapter 2
Employers - Registration for PAYE system purposes
Employees - Obtaining a PPS Number and notifying the
Revenue
Commissioners
of
their
employment
2.1
Employers
2.1.1 Registration for PAYE system purposes
It is necessary for employers (or certain other persons – see Chapter 3) to
register with the Revenue Commissioners for the purposes of the PAYE
system.
To register for PAYE purposes, the employer (or certain other persons see paragraph 3.4) must complete Form TR1 or TR2 (available on
http://www.revenue.ie/forms/formtr1.pdf
and
revenue.ie
at
http://www.revenue.ie/forms/formtr2.pdf respectively). In the case of
non-resident persons (individuals, partnerships and companies), the Form
TR1 or TR2, as appropriate, should be submitted to:
Office of the Revenue
Commissioners
IRDS Section
City Centre District
Áras Brugha
9/10 Upper O’Connell Street
Dublin 1
Tel: 00 353 1 8655000
Fax: 00 353 1 8749431
E-mail: cityreg@revenue.ie
2.1.2 Failing to register with the Revenue Commissioners
Where an employer pays income which is within the scope of the PAYE
system but fails to register for that purpose, the Revenue Commissioners
may compulsorily register the employer, estimate the tax due and seek
payment of the amount of deductions the employer should have made
under the PAYE system from the income paid to employees.
2.2
Employees
2.2.1 Obtaining a Personal Public Service number (PPS number)
The identification number for individuals for many State services in Ireland
is known as the Personal Public Service number and more commonly
known as a PPS number. The Department of Social and Family Affairs
allocates PPS numbers to individuals (see Appendix A for further
information).
For tax purposes, the PPS number is necessary to enable the Revenue
Commissioners issue employees with a determination of their tax credits
and correct tax rate bands so that the employer (or other relevant person)
can deduct the correct payroll tax under the PAYE system.
2.2.2 Applying to the Revenue Commissioners for a determination of tax
credits and rate bands
Once an employee has obtained his/her PPS number, he/she can apply to
the Revenue Commissioners for a determination of his/her tax credits and
tax rate bands that will apply to his/her emoluments that are within the
Page 8 of 41
Revenue Commissioners
SP – IT/3/07
scope of the PAYE system by completing Form 12A.
should contain the following information (a)
Such an application
the employee’s name, address and PPS number;
(b)
the employee’s marital status (e. g. married, widowed or single);
(c)
the employer’s name, address & Irish tax reference number;
(d)
the date the employee commenced work;
(e)
the employee’s nationality;
(f)
the employee’s residence details; and
(g)
where relevant, the employee’s spouse’s details requested on the
form 12A.
Page 9 of 41
Revenue Commissioners
SP – IT/3/07
Chapter 3
Application of the PAYE system to non-Irish sourced employment
income
3.1
Statutory position with effect from 1 January 2006
Irrespective of the tax residence position of the employee or the employer,
income from a non-Irish employment attributable to the performance in
the State of the duties of that employment is chargeable to income tax in
the State and is within the scope of the PAYE system of deductions at
source.
The following sections of the Taxes Consolidation Act 1997, which have
effect from 1 January 2006, supplement the PAYE system –
Section 985C deals with situations where employees are paid by an
‘intermediary’ (see paragraph 3.4.1);
Section 985D deals specifically with employees of a non-resident
employer (see paragraph 3.4.2);
Section 985E deals with the operation of PAYE for individuals
performing some duties of a foreign employment inside and outside
the State (see paragraph 3.4.3);
Section 985F deals with situations involving a ‘mobile workforce’ see
paragraph 3.4.5).
3.2
What happens if a non-Irish employment is exercised wholly in the
State?
All of the income is chargeable to tax in the State and all the income is
within the PAYE system of deductions at source.
Note – See Chapter 6 regarding Social Security contributions.
3.3
What happens if a non-Irish employment is exercised partially in
the State and partially outside the State?
In this scenario, it is necessary to determine the portion of the income
attributable to the performance in the State of the duties of that
employment (as this income is within the scope of the Pay As You Earn
(PAYE) system of deductions at source).
Example
John is an employee of a non-Irish company employed under a foreign
contract of employment under which he earns €4,000 per fortnight. He
performs the duties of his employment mainly in Ireland except for every
fourth week when the duties of his employment are performed outside the
State.
Page 10 of 41
Revenue Commissioners
SP – IT/3/07
Income to which the PAYE
payroll deduction system
applies
Note
Fortnight 1
€4,000
As this income is attributable to
duties exercised in the State
Fortnight 2
€2,000
As only €2,000 is attributable to
duties performed in the State.
Fortnight 3
€4,000
As this income is attributable to
duties exercised in the State
This method of apportionment would continue throughout the year.
Note – John, depending on his personal circumstances, may have an
income tax liability on the remaining €2,000 not taxed at source
under PAYE.
3.4
PAYE provisions
3.4.1 Section 985C - PAYE: Payment by an intermediary
In the first instance, the payer of income to employees applies the PAYE
system of tax deductions at source to such income. Therefore, where
emoluments are paid by an intermediary acting on behalf of an employer,
the intermediary applies the PAYE system.
However, section 985C provides that the obligation to operate the PAYE
system remains with the employer where the intermediary fails to operate
such system.
An ‘intermediary’ includes a person, or a trustee, acting on behalf of, and
at the expense of the employer, or a person connected to the employer.
Example
Mary is an employee of ABC Ltd.
She performs the duties of her
employment in Ireland on the premises of CDE Ltd. CDE Ltd agrees to pay
Mary’s income. CDE Ltd. must apply PAYE to so much of Mary’s income
as is attributable to the performance in the State of the duties of the
foreign employment. However, if CDE Ltd fails to do so, ABC Ltd must
account to Revenue for the PAYE deductions.
3.4.2 Section 985D - PAYE: employee of a non-resident employer
Section 985D comes into play when an employee works for a person
(referred to as a ‘relevant person’) who is not the employee’s employer.
Under section 985D, where (a) an employee of a non-resident employer works for a person (the
‘relevant person’) in the State; and
(b) the non-resident employer or an intermediary of the employer or of
the “relevant person” fails to operate the PAYE system on emoluments
attributable to the work done in the State by the employee for the
‘relevant person’,
then, the ‘relevant person’ must operate the PAYE system.
Example
Patrick is an employee of a non-Irish company, FGH Ltd, employed under
a foreign contract of employment. For 2007, he is assigned to work in
Page 11 of 41
Revenue Commissioners
SP – IT/3/07
Ireland for JKL Ltd. However, FGH Ltd fails to operate the Irish PAYE
system in respect of Patrick’s income attributable to his work here.
In this instance, JKL Ltd must apply PAYE to Patrick’s income attributable
to his work with that company.
3.4.3 Section 985E - PAYE: employment not wholly exercised in the State
This section applies in the case of individuals exercising duties under a
foreign contract of employment partly in the State.
As previously stated in paragraph 3.1 above, income from a non-Irish
employment attributable to the performance in the State of the duties of
that employment is chargeable to income tax in the State and is within the
scope of the PAYE system of deductions at source.
However, in some instances, the amount of income from a non-Irish
employment attributable to the performance in the State of the duties of
that employment that is within the scope of the PAYE system of deductions
at source may not be readily ascertainable. In such cases, section 985E
allows the employer to apply for a direction from an officer of the Revenue
Commissioners as to the proportion of the income that should be within
the PAYE system. An application from the employer must include such
information as is available and is relevant to the giving of the direction.
Where a direction is given by an officer of the Revenue Commissioners
under this section, any material change in the circumstances will render
the direction void and require a further direction having regard to the
altered circumstances.
Where the amount of income from a non-Irish employment attributable to
the performance in the State of the duties of that employment is not
readily ascertainable and the employer does not apply for a direction
under section 985E, the full emoluments must be subjected to PAYE
deductions.
3.4.4 Directions under section 985E(3)
A direction need not be sought (a) where there is certainty as to the portion of the employment income
assessable to income tax under Schedule E and to which PAYE should
be applied (for example, where an individual works in the State under
a set work pattern or is assigned into the State for a predetermined
period of time); or
(b) where, in respect of the income of temporary assignees, the
obligation to operate PAYE is relieved in accordance with the criteria
described in Chapter 4.
Examples where an employer need not apply for a direction
Example A
Anne is an employee of a non-Irish company employed under a foreign
contract of employment. She performs the duties of her employment in
the State for a continuous period of eight months. The employer is
obliged to operate PAYE on the full income arising in that period as it is
paid and no direction is required from the Revenue Commissioners.
Page 12 of 41
Revenue Commissioners
SP – IT/3/07
Example B
Deirdre is an employee of a non-Irish company employed under a foreign
contract of employment. She performs the duties of her employment on a
regular pattern of two months in the State and one month outside the
State. The employer may either operate PAYE on two thirds of Deirdre’s
income throughout the year, or operate PAYE on the full amount of income
attributable to the performance of the duties of the foreign employment
within the State as such amounts are paid. No direction is required from
the Revenue Commissioners.
NB –In these circumstances, where the employer chooses to operate PAYE
on two-thirds of Deirdre’s income, but Deirdre leaves the employment at
some point before the end of the tax year, the employer should ensure
that PAYE has been applied to the correct amount of income chargeable to
tax in the State under Schedule E.
Example C
Alan is an employee of a non-Irish company employed under a foreign
contract of employment. He has a regular pattern of three work days
within the State and two work days outside the State per week throughout
the year. The employer should operate PAYE on three fifths of Alan’s
gross income per week throughout the year. No direction is required from
the Revenue Commissioners.
Example D
Liam is an employee of a non-Irish company employed under a foreign
contract of employment. For the first four months of the year Liam has a
regular pattern as in Example C (three work days in the State, two work
days outside the State per week). For the last eight months of the year,
Liam exercises all the duties of his foreign employment in the State. For
the first four months, the employer should operate PAYE on three-fifths of
Liam’s gross income. For the last eight months, the employer should
operate PAYE on the full amount of the income. No direction is required
from the Revenue Commissioners.
Example E
Liza is an employee of a non-Irish company employed under a foreign
contract of employment. She has an irregular work pattern throughout
the year.
It is clear from documented experience that the income
attributable to the performance of duties within the State is a fixed
proportion (e.g. two-thirds) of her gross income from her foreign
employment. The employer should operate PAYE on that fixed proportion
of her gross income.
No direction is required from the Revenue
Commissioners.
Example F
Adrienne is an employee of a non-Irish company employed under a foreign
contract of employment. She has an irregular work pattern throughout
the year. The employer can determine, on a payment by payment basis,
the income attributable to the performance of duties within the State,
based on the number of work days that she performs such duties in the
State. The employer should operate PAYE on each payment of income
Page 13 of 41
Revenue Commissioners
SP – IT/3/07
attributable to the performance of duties within the State. No direction is
required from the Revenue Commissioners.
Example where an employer should apply for a direction
Example G
Patrick is an employee of a non-Irish company employed under a foreign
contract of employment. He is obliged to perform certain duties of his
employment in the State but, because of his irregular work pattern, the
employer is uncertain as to the amounts of his income (including benefits)
that are within the scope of the Irish PAYE system. In this instance, the
employer should apply for a direction from Revenue as to the proportion of
the emoluments that should be within the PAYE system.
3.4.5 Section 985F - PAYE: mobile workforce
This section applies where(a)
it appears to the Revenue Commissioners that a person (the
‘relevant person’) has entered into, or is likely to enter into, a
contract to engage employees of another person (the ‘contractor’);
and
(b)
it is likely that the income paid by or on behalf of the ‘contractor’,
being the real employer, will not be subject to the operation of the
PAYE system by the ’contractor’.
Under this provision, the Revenue Commissioners are authorised to direct
that the ’relevant person’ must operate the PAYE system (notwithstanding
that the ’relevant person’ is not the employer in this case).
Example
RST Ltd has entered into an agreement with XYZ Ltd to the effect that
employees of XYZ Ltd will work in the State for RST Ltd. If it is likely that
XYZ Ltd will not apply the PAYE system to the income it pays its
employees, then the Revenue Commissioners may issue a direction to RST
Ltd to account for the PAYE due.
Note- All the aforementioned references to income include salaries, fees,
wages, bonuses, perquisites, profits and taxable benefits from
employments. (See paragraph 8.1 concerning bonuses earned
before the duties of the foreign contract of employment were
performed in the State.)
Page 14 of 41
Revenue Commissioners
SP – IT/3/07
Chapter 4
Temporary Assignees
Release for employers from the obligation to
operate the Irish PAYE system
4.1
General
When dealing with temporary assignees who hold non-Irish employments,
two separate and distinct issues arise (a) the operation by employers (and certain other persons – see
paragraph 3.4) of the PAYE system of payroll deductions at source;
and
(b) the relief from Irish tax due to the employees under a double taxation
agreement between Ireland and another jurisdiction.
The fact that an employee may be temporarily working in the State and
relieved from the charge to Irish tax under the terms of a double taxation
agreement does not mean that the employer need not operate the PAYE
system on the employee’s income attributable to the performance in the
State of the duties of that employment.
However, the Revenue Commissioners do not require an employer (or
certain other persons – see paragraph 3.4) to operate the Irish PAYE
system in respect of temporary assignees as described in paragraph 4.2
below.
4.2
Temporary Assignees
4.2.1 Short term business visits to the State – not more than 60 working
days
Under the terms of the Employments Article of Double Taxation
Agreements (DTAs) between Ireland and other countries, the income
attributable to the performance in the State of the duties of an
employment may be relieved from the charge to Irish tax and tax
deducted under PAYE must be repaid.
Revenue will not require an employer to operate PAYE where the following
criteria are satisfied (a) the individual is resident in a country with which the State has a
Double Taxation Agreement and is not resident in the State for tax
purposes for the relevant tax year;
(b) there is a genuine foreign office or employment;
(c) the individual is not paid by, or on behalf of, an employer resident in
the State;
(d) the cost of the office or employment is not borne, directly or indirectly,
by a permanent establishment in the State of the foreign employer;
and
(e) the duties of that office or employment are performed in the State for
not more than 60 working days in total in a year of assessment and, in
any event, for a continuous period of not more than 60 working days.
Note For the purposes of (e) above a ’working day’ is any day in which
any work is performed in the State.
Page 15 of 41
Revenue Commissioners
SP – IT/3/07
4.2.2 Simultaneous deductions under the Irish PAYE system and under a
tax deduction system of another tax jurisdiction.
Under the general double taxation agreement principles, where (a) an individual who is a tax resident of another jurisdiction is on
temporary assignment in the State; and
(b) there is an obligation to make deductions at source from that
individual’s salary / wages under both the Irish PAYE system and a
foreign tax deduction system simultaneously,
the obligation to grant relief in respect of such potential double deduction
at source generally rests with the jurisdiction of which the individual is
resident for tax purposes. More specific detail can be found in the terms
of the appropriate treaty. A list of the Double Taxation Agreements
between Ireland and other jurisdictions is on the Revenue website at
http://www.revenue.ie/services/tax_info/taxes12.htm
.
However, where temporary assignees of Treaty countries1. are present in the State for a period or periods not exceeding in the
aggregate 183 days in a year of assessment, and
2. suffer withholding taxes at source in the ’home’ country on the
income attributable to the performance of the duties of the foreign
employment in the State,
then, with effect from 1 January 2007, the Revenue Commissioners will
not require an employer (or certain other persons - see paragraph 3.4) to
operate the Irish PAYE system in respect of such temporary assignees who
have income attributable to the performance in the State of the duties of a
foreign employment where the following conditions, in addition to those in
paragraph 4.2.1 above (other than condition (e)), are met.
Note- For the purposes of rule 1 above, a day during any part of which,
the employee is present in the State counts as a day of presence in the
State for the purposes of computing the 183 day period.
The foreign employer must
(a)
be registered in the State as an employer for PAYE tax purposes; and
o where there is an intermediary (as defined in section 985C TCA
1997 – see paragraph 3.4.1) paying the employees of the foreign
employer, supply details of the intermediary who is paying the
employees; and
o where there is a relevant person (as defined in section 985D TCA
1997 – see paragraph 3.4.2) supply details of the relevant person
for whom the employees of the foreign employer are doing work in
the State.
o
OR
Where the employees of the foreign employer are performing in the
State the duties of the foreign employment, and are paid by a
connected entity in the State of the foreign employer (connected in
the sense that the entity is controlled by the foreign employer or
visa versa or both are under common control) on behalf of that
employer or are paid by the foreign employer, and the connected
local entity in agreement with the foreign employer has assumed
Page 16 of 41
Revenue Commissioners
SP – IT/3/07
responsibility for compliance with PAYE/PRSI obligations on behalf
of the foreign employer, then the foreign employer need not
register as an employer but must supply:
o
the PAYE registered number of the connected entity;
o
its own full name and address; and
o
where there is a relevant person (as defined in section 985D TCA
1997 – see paragraph 3.4.2) the name and address of that relevant
person for whom the employees of the foreign employer are doing
work in the State;
(b)
maintain a record of the full name, latest Irish and overseas address,
date of commencement and cessation of the individual, the location
where the individual carries out the duties of the temporary
assignment and the amount of earnings in respect of the temporary
assignment; and
(c)
sign a written acknowledgement that in all cases where liability is
subsequently found to arise in respect of payments of emoluments to
assignees (e.g. because of a breach of any of the conditions) the
employer will be liable under the relevant provisions of the Taxes
Consolidation Act 1997 to pay the tax that should have been
deducted from those emoluments; and
(d)
supply evidence (see Note B below) of withholding tax in the foreign
jurisdiction on the income attributable to the performance in the
State of the duties of the foreign employment; and
(e)
on request, supply a copy of the contract(s) relating to the
employer’s engagement in the State; and
(f)
seek clearance in writing from the Revenue Commissioners by the
later of 21 days after the date the assignee takes up duties in the
State, or 30/10/2007 - pending written clearance from Revenue,
PAYE need not be operated if all other conditions are met.
Note A
Where the foreign employer supplies the PAYE registered number of a
connected entity in the State who is paying the emoluments on its behalf,
Revenue may require evidence that the employment is a genuine foreign
contract of employment, and that Treaty relief is due.
Note B
The following will be regarded as acceptable evidence of withholding taxes
in the foreign jurisdiction:
o
Certified copy of payslip. (Must be certified by the employer or
the independent auditor of the employer. In the case of
companies certification by a director or company secretary will
be acceptable.)
or
o
Statement from the relevant foreign tax jurisdiction.
Page 17 of 41
Revenue Commissioners
SP – IT/3/07
Note C
An application for clearance from a foreign employer may cover more than
one employee.
Note D
Applications should be submitted to
Office of the Revenue
Commissioners
IRDS Section
City Centre District
Áras Brugha
9/10 Upper O’Connell Street
Dublin 1
Tel: 00 353 1 8655000
Fax: 00 353 1 8749431
E-mail: cityreg@revenue.ie
4.2.3 Short-term business visits to the State of not more than 30 days non-treaty countries
Where a non-resident employee from a non-treaty country performs in the
State incidental duties and performs those incidental duties in the State for
no more than 30 days in aggregate in a tax year, PAYE need not be
deducted in respect of income attributable to such duties.
Note- In this context a ’day’ is any day in which any work is performed in
the State.
The practices set out in this Statement should be relied upon only
to the extent that the employment arrangements concerned are
undertaken in good faith and for purposes other than tax
avoidance. In addition, and without prejudice to Revenue’s
entitlement to review, amend or withdraw its practices from time
to time as appropriate, the practice set out in paragraph 4.2.2 will
be subject to review by the Revenue Commissioners after a period
of 12 months, and Revenue reserves the right to amend or
withdraw that practice on foot of such review, as respects
employments commencing after such amendment or withdrawal.
Page 18 of 41
Revenue Commissioners
SP – IT/3/07
Chapter 5
Internationally Mobile Employees / Tax Equalisation
5.1
Overview
In many instances, internationally mobile employees enter into either a
tax equalisation arrangement or a tax protection arrangement with their
employer when they are seconded, transferred or assigned to work in
another jurisdiction.
This Chapter outlines the Irish tax treatment where such an arrangement
exists.
5.2
Tax equalisation / Tax protection / Hypothetical Tax
A tax equalisation arrangement may take various forms and, in general
refers to an arrangement between an employer and an employee to
provide that the employee is no better or no worse off in personal tax
terms than if he/she had not relocated.
A tax protection arrangement generally refers to an arrangement between
an employer and an employee to provide that the employee is no worse
off in personal tax terms than if he/she had not relocated.
Hypothetical tax is an estimate of the tax that the employee would have
paid had he/she not relocated (this is sometimes known as the
hypothetical ‘home tax’). The purpose of a hypothetical tax calculation is
to determine the employee’s after tax position had he/she not relocated as
this is very often used as the ‘base’ for determining the gross pay for tax
purposes in the new country where the employee is based.
Note – The detail of a tax equalisation or tax protection arrangement is a
matter for the employee and his/her employer.
5.3
Methods to give effect to tax equalisation
The income attributable to the performance of the duties of a non-Irish
employment in the State is chargeable to tax under Schedule E and
accordingly the appropriate deductions must be made under the PAYE
system. Any method of calculation used by an employer must satisfy this
requirement.
Income means emoluments (i.e. anything chargeable to tax under
Schedule E) and includes any bonus, commission benefit or perquisite, etc.
and any tax paid by an employer on behalf of an employee attributable to
the performance of the duties in the State. Where an employer pays tax
on behalf of an employee under a tax equalisation arrangement, the net
take home pay should be regrossed for the purposes of calculating the tax
due under the PAYE system.
Example A
Joe is a US national. His gross salary in 2006 is €100,000. His salary
after US tax in that year is €75,000. He is transferred to Ireland with
effect from 1 January 2007. His employer has agreed that he will receive
take home pay of €85,000 in 2007. If Joe is single and qualifies for the
single persons’ standard rate band, single persons’ tax credit and the PAYE
Page 19 of 41
Revenue Commissioners
SP – IT/3/07
tax credit, his gross salary in 2007 will be €126,000 in order that he
receives net take home pay of €85,000 (see computation below):
€
126000
Gross salary
Tax
34000
92000
Tax before credits
Credits
Single
PAYE
Tax after credits
Net salary
@ 20%
@ 41%
1760
1760
6800
37720
44520
3520
41000
85000
Example B
If Joe qualifies for the married persons’ one income standard rate tax
band, the married persons’ tax credit and the PAYE tax credit, his gross
salary in 2007 will be €119,814 in order that he receives net take home
pay of €85,000:
€
119814
Gross salary
Tax
43000
76814
Tax before credits
Credits
Married
PAYE
Tax after credits
Net salary
@ 20%
@ 41%
3520
1760
8600
31494
40094
5280
34814
85000
Example C
If Joe works in Ireland three days every week, three-fifths of his income
from his foreign contract of employment is taxable in Ireland. If, as
above, his employer agrees he will receive take home pay in 2007 of
€85,000, he will receive three fifths of his take home pay (€85,000 x 3/5
= €51,000) in respect of the duties exercised in the State of his foreign
contract of employment. If Joe qualifies for the single persons’ standard
rate tax band, the single persons’ tax credit and the PAYE tax credit, the
gross pay for the duties of his foreign employment will be €68,373 to
ensure he receives take home pay in respect of the Irish duties of
€51,000:
€
68373
Gross salary
Tax
34000
34373
Tax before credits
Credits
Single
PAYE
Tax after credits
Net salary
1760
1760
Page 20 of 41
@ 20%
@ 41%
6800
14093
20893
3520
17373
51000
Revenue Commissioners
SP – IT/3/07
If, as above, Joe exercises the duties of his foreign contract of
employment in Ireland for three days a week, but qualifies for the married
persons’, one income standard rate tax band, married persons’ tax credit
and PAYE tax credit, the gross pay in respect of the duties of his foreign
employment exercised here will be €62,187 in order that he receives take
home pay of €51,000:
€
62187
Gross salary
Tax
43000
19187
Tax before credits
Credits
Married
PAYE
Tax after credits
Net salary
3520
1760
@ 20%
@ 41%
8600
7867
16467
5280
11187
51000
NB – In the examples above, figures have been rounded to the nearest Euro.
We have assumed that the individual has a US certificate of coverage, which
exempts this income from PRSI and the Health Contribution (see Chapter 6).
5.4
Refunds of Tax
In some instances, a tax equalisation arrangement between an employee
and his/her employer may contain an agreement that the employee will
reimburse certain refunds of tax to the employer. Such an arrangement is
a matter for the employer and the employee.
Page 21 of 41
Revenue Commissioners
SP – IT/3/07
Chapter 6
Social Security - Pay Related Social Insurance (PRSI) / Health
Contributions
6.1
Overview
The Social Security system in Ireland is known as the Pay Related Social
Insurance (PRSI) system. A guide to the PRSI system can be found on the
website of the Department of Social & Family Affairs at
www.welfare.ie/topics/prsi/index.html.
6.2
Collection of PRSI
Whilst the PRSI system is administered by, and is under the control of, the
Department of Social & Family Affairs, employee and employer PRSI
contributions are collected under the PAYE systems along with employee
payroll tax deductions with the total amounts being remitted to the Collector-General
Office of the Revenue Commissioners
Sarsfield House
Limerick
Ireland
Tel: 00 353 1 61 488000
E-mail : cgcustserv@revenue.ie
Note- For those employees who are liable to PRSI in the State and who
are not on the PAYE system, PRSI is payable through the Special Collection
System, Department of Social & Family Affairs, Waterford.
6.3
EU Regulations / Reciprocal Arrangements
EU Regulation 1408 of 1971 sets out the rules governing liability to PRSI/
National Insurance/Social Security in the case of EU nationals and non-EU
nationals legally resident in the territory of EU Member States, working in
other EU jurisdictions.
Essentially, the rules provide that contributions
by, or in respect of, these workers are not paid in more than one
jurisdiction simultaneously.
In addition, the State has a number of
reciprocal agreements governing liability to PRSI/National Insurance/
Social Security with several non-EU countries. These reciprocal
agreements provide that contributions are paid in one jurisdiction but not
in both at the same time.
6.4
Deduction of PRSI
In the absence of an E101 certificate, certificate of coverage under a
reciprocal arrangement or a PRSI exemption certificate from the
Department of Social & Family Affairs, employers are required to make
PRSI deductions and should note that PRSI is payable from the 1st day of
insurable employment for duties performed in the State. In cases of
doubt, employers should contact the Department of Social & Family
Affairs.
Page 22 of 41
Revenue Commissioners
6.5
SP – IT/3/07
Contacting the Department of Social & Family Affairs
The Department of Social & Family Affairs contact point for foreign
employers and PRSI queries is –
Special Collections Unit
Department of Social & Family Affairs
Government Buildings
Cork Road
Waterford
Phone:
00 353 51 356019
00 353 51 356016
Fax:
00 353 51 8778383
E-mail: e101spc@welfare.ie
6.6
Health Contribution
6.6.1 Deduction of the Health Contribution where the employer qualifies
for release from the obligation to operate PAYE
Where, in accordance with Chapter 4, an employer qualifies for release
from the obligation to operate the Irish PAYE system in respect of
emoluments paid to temporary assignees, health contributions need not
be deducted from such emoluments.
6.6.2 Deduction of the Health Contribution in other cases
US Certificate of Coverage
As Article 2 of the Social Security Agreement between Ireland and the
United States of America (SI 243/1993) covers both Social Security and
the Health Contribution, an employer is released from the obligation to
deduct the Health Contribution in respect of an employee who holds a US
Certificate of Coverage.
Other Social Security agreements
Pursuant to Regulation (EC) 1408/71, persons temporarily posted to
Ireland by their employer but who continue to be subject to the Social
Security legislation of another EEA Member State (as evidenced by a Form
E101 or Form E106) are exempted from the payment of Health
Contribution for the duration of the posting in Ireland. In addition, Ireland
has Social Security agreements with Australia, Austria, Canada (including
Quebec), New Zealand and Switzerland. While these agreements cover
PRSI, none of them covers the Health Contribution. Accordingly, the
employer is obliged to deduct the Health Contribution in respect of
emoluments paid to temporary assignees unless:
o
paragraph 6.6.1 applies; or
o
the employee holds a US Certificate of Coverage; or
o
the employee holds a Form E101 or Form E106.
Page 23 of 41
Revenue Commissioners
SP – IT/3/07
Chapter 7
Pension Contributions
7.1
Background
Many individuals seconded from overseas parent companies or subsidiaries
of an Irish business to work in the State (’seconded individuals’) continue
to o
be paid from abroad;
o
benefit from employer contributions to their foreign pension fund; and
o
continue to make personal contributions to a foreign pension scheme.
The contribution by an employer into a pension scheme for the benefit of
an employee is a taxable emolument (see section 777 Taxes Consolidation
Act 1997), except where –
(a) such charge is relieved under the terms of a double taxation
agreement, or
(b) where the provisions of section 778 Taxes Consolidation Act 1997
applies, i.e. where i. the emoluments of the office or employment are not chargeable to
tax in the State; or
ii. the remittance basis of taxation applies to the emoluments of the
office or employment; or
iii. the employer pension contributions are made to:
o an approved scheme; or
o a statutory scheme; or
o a scheme set up by a Government outside the State for the benefit,
or primarily for the benefit, of its employees. or
(c) with effect from 1 January 2006, the conditions of paragraph 7.4 below
apply.
7.2
Relief under Double Taxation Agreements
Contributions made by seconded individuals to foreign pension schemes
may qualify for income tax relief under the provisions of a relevant Double
Taxation Agreement (Article 18(5) of the Ireland/USA DTA or article 17A
of the Ireland/UK DTA) (see Appendices B and C). Under the relevant
provisions of both these treaties, contributions made by or on behalf of the
individual’s employer are not treated as part of the individual’s taxable
income.
7.3
Migrant Member Relief
Contributions made by seconded individuals to foreign pension schemes
may qualify for income tax relief if they come within the scope of migrant
member relief, as enacted in sections 787M and 787N TCA 1997 (see
Appendix D). If migrant member relief is available, contributions made by
Page 24 of 41
Revenue Commissioners
SP – IT/3/07
or on behalf of the individual’s employer are not treated as part of the
individual’s taxable income.
7.4
Contributions to overseas pension schemes
With effect from 1 January 2006, relief will also be available in respect of
contributions made directly by seconded individuals into foreign pension
schemes, in bona fide cases, where:
(a)
the employee (i)
has been seconded by a foreign company to work in the State
for that company or for a company which is connected to the
foreign company;
(ii)
was, prior to coming to work in the State, employed outside
the State for a period of not less than 18 months by the foreign
company (or a foreign company connected to that company);
(iii)
is either not Irish-domiciled or, being an Irish citizen, is not
ordinarily resident in the State at the time the pension
contributions are made;
(iv) had, prior to coming to work in the State, been making
contributions to the foreign pension scheme referred to in (c)
below for a period of not less than 18 months; and
(v)
(b)
is not resident in the State for a period of more than 5 years
(but see Note below);
the foreign employer (i)
is resident for tax purposes in an EU Member State or in a
country with which the State has a Double Taxation Agreement;
(ii)
has, prior to the individual coming to work in the State, been
making contributions to a foreign pension scheme on behalf of
the employee for a period of not less than 18 months;
(c)
the foreign pension scheme is a statutory scheme in a state or
country mentioned in (b)(i) above, other than a state Social Security
scheme, or is a scheme in respect of which tax relief is available in
such a state or country; and
(d)
both the employer and employee contributions comply with the rules
of that foreign pension scheme.
Revenue will also treat contributions made by the employer to the pension
scheme, for the benefit of the employee, as not being taxable.
Note – Where an individual is resident in the State for a period of more
than 5 years, ignoring any periods prior to 1 January 2003,
written permission of the local Revenue office will be required for
the continuation of the above treatment of pension contributions
beyond that period.
Page 25 of 41
Revenue Commissioners
7.5
SP – IT/3/07
Revenue Pensions Manual – Chapter 17
Contributions made by seconded individuals to foreign pension schemes
may qualify for income tax relief if they come within the scope of
paragraph 17.5 of the Revenue Pensions Manual (see Appendix E).
However, if the individual’s contributions qualify for relief under this
provision, but not under the conditions in paragraphs 7.2, 7.3 and 7.4
above, contributions made by or on behalf of the individual’s employer are
chargeable to tax as emoluments of the employment. Relief will be
granted to seconded individuals for such ’employer’ contributions.
However, the overall relief available in respect of the aggregate of
employer contributions and employee contributions will be confined to the
limits referred to in paragraph 7.6 below.
7.6
Limits
The normal age related income percentage limits on contributions and the
annual aggregate earnings cap (€262,382 for 2007) apply.
7.7
Further information
Further information in relation to overseas pension schemes is available
from:
Revenue Commissioners
Large Cases Division
Financial Services (Pensions)
4th Floor,
Grattan House,
Lower Mount Street,
Dublin 2.
Tel: 00 353 1 6474022
Fax
00 353 1 6474748
E-mail: lcdretirebens@revenue.ie
Page 26 of 41
Revenue Commissioners
SP – IT/3/07
Chapter 8
Miscellaneous
8.1
Bonuses
In general, where, in a year of assessment –
(a) an individual is in receipt of income from a foreign employment within
the charge to tax in the State (either on the full amount earned or,
under the remittance basis, on the amount remitted to the State); and
(b) a bona fide bonus in respect of that employment, which was earned in
a year of assessment in which that income was not chargeable to tax
in the State under Schedule E, but is paid in a year of assessment in
which the individual is in receipt of income from that employment
which is chargeable to tax under Schedule E,
such bonus is not within the scope of the PAYE system.
Where
appropriate, the remittance basis of taxation may apply to the bonus.
However, given the scope for re-characterising income for a current year
as a bonus for the previous year, Revenue may investigate the
circumstances surrounding the payment of the bonus, with a view to
establishing its bona fides.
8.2
Exchange rates
Where an employer has to convert a foreign currency into euro as part of
the application of PAYE to the payment of emoluments, Revenue will
accept the exchange rate at either:
(a)
(b)
the date of calculation, in the employer’s records, of the tax liability
related to the payment, or
the actual date of payment of emoluments,
provided the method chosen is used on a consistent basis, and where the
rate at (a) above is used, the date of calculation of the tax liability is not
later than the date of payment of the emolument.
8.3
Foreign Service Relief - termination of employment
Foreign service relief will continue to be available in accordance with
section 201(1) TCA 1997. However, the performance in the State of
duties of a foreign office or a foreign employment is not foreign service.
8.4
Permanent Establishment
Revenue’s ‘Criteria and Guidelines on Permanent Establishment (PE)’ in
the State are shown in Appendix F.
Page 27 of 41
Revenue Commissioners
SP – IT/3/07
Appendix A
Extract from the Department of Social & Family Affairs’ website
Your Personal Public Service Number
Frequently Asked Questions on the PPS No
Q1.
What is my PPS No.?
A1. Your PPS No. is your Personal Public Service Number. It is a unique
identifier for use in any transactions you may have with public bodies or
persons authorised by those bodies to act on their behalf. Use of the
number eliminates the possibility of confusing one person with another
and makes it possible for public bodies to deal in a faster and more
efficient manner with their customers.
Q2.
How do I find out what my PPS No. is?
A2. Your PPS No. can be found on tax documents and it is often on
correspondence from a social welfare or tax office. It may also be on your
payslip.
Q3.
I've looked for my number and I still can't find it – what should I
do?
A3. You should contact your nearest or most convenient Social Welfare
office. To find the address of your local offices consult the green pages of
the telephone directory, or consult the DSFA website List of Local
Offices.
Q4.
I have just arrived in Ireland and don't have a number. How do I
get one?
A4. You should contact your nearest or most convenient Social Welfare
office who will assist you with the registration process. You will be asked to
produce documentary evidence of identity and residence in this country.
The complete list of documents required can be found on the DSFA website
at http://www.welfare.ie/foi/cis_ppsallprocs.html
Q5.
What is the format of the PPS No.?
A5. A PPS No. is always 7 numbers, and followed by either one or two
letters. If there are two letters, the second letter is always a letter 'W'.
Q6.
What am I supposed to use my PPS No. for?
A6. Your PPS No. should only be used in transactions with Government
Departments and Agencies or persons or bodies that they have authorised
to act on their behalf.(See Appendix B)– NB – this is a reference and/or
a link to the website of the Department of Social and Family Affairs.
Q7.
Who can ask me for my PPS No.?
A7. You can only be asked for your PPS No. by one of the agencies listed in
Appendix B (via link in Q6 above) or by an authorised agent of one of these
bodies. Your employer will also use your PPS No. for the purposes of advising
Revenue and DSFA of your tax deductions and PRSI contributions.
Page 28 of 41
Revenue Commissioners
Q8.
SP – IT/3/07
What should I do if someone asks me for my PPS No?
A8. You should provide them with your number once you are satisfied that
they are entitled to ask for it. In this regard you may find it helpful to refer to
the list of agencies here. In any case of doubt, you should contact Client
Identity Services in the Department of Social and Family Affairs for
clarification.
Q9.
What do I do if someone who is not entitled to use the PPS No.
asks me for it?
A9. If you believe that a person asking for your PPS No. is not entitled to do
so, do not give them your number until you have contacted Client Identity
Services of the Department of Social and Family Affairs, Gandon House,
Amiens St, Dublin 1, Tel:704 3236 for advice. You can also email us at
cis@welfare.ie
Q10. When should I not use my PPS No.?
A10. You should not use your PPS No. or Social Services Card in ordinary
commercial transactions. For example, the number or the Social Services Card
should not be requested by or given to a retailer as proof of identity or for any
other reason when making a purchase, availing of a hiring service etc.
Q11. Can the Gardaí ask me for my PPS No.?
A11. Social Welfare legislation provides that members of An Garda Siochána
and the Defence Forces are only entitled to use the PPS No. in respect of their
own members. However, under the Immigration Act 2003 the PPS No. can be
used by An Garda Siochána in respect of non-EU nationals.
Q12. Am I obliged to provide the number if a public body asks for it?
A12. Yes. Once an agency is entitled to use the number, a person who has a
transaction with that agency must provide the number on request.
Q13. How come the banks were collecting the number when the SSIA
scheme was being arranged?
A13. The banks were entitled to collect the PPS No. for the purposes of the
Special Savings Incentive Account scheme and for that purpose only. The SSIA
scheme is administered by the Department of Finance and the banks are
acting as agents of that Department in this regard. Because the PPS No. is a
unique identifier, using the PPS No. in connection with the scheme ensures
that no one person can avail of the incentive more than once.
Q14. So can a bank or building society ask me for my PPS No. for any
other reason?
A14. Yes. These would be where an account holder has a loan on which they
are claiming tax relief on the interest paid, for example a mortgage or home
improvement loan. In order that the Revenue Commissioners can correctly
apply the Tax Relief at Source (TRS) provisions to such a loan, some Financial
Institutions notify the interest details to Revenue using the PPS No. as a
unique identifier. Note that not all Financial Institutions use the PPS No. in this
regard.
The Regulations implementing the EU Taxation of Savings Income Directive
require Financial Institutions (Banks, Building Societies, Credit Unions etc.) to
establish the identity of prospective customers. In order to comply with the
document retention requirement contained in the Regulations, Financial
Institutions may retain a manual record or a photocopy of a document
Page 29 of 41
Revenue Commissioners
SP – IT/3/07
containing the PPS Number. The PPS Number must not be recorded on the
bank's computer system and the PPS Number must not be used by the bank
for any other purpose.
Q15. Is it possible for me to get a new number?
A15. No. Once a PPS No. is allocated it is never changed. If you cannot find
your PPS No. you should contact your nearest or most convenient Social
Welfare Office for assistance.
To find the address of your local offices consult the green pages of the
telephone directory, or consult the DSFA website List of Local Offices.
Q16. Is the PPS No. a National ID?
A16. No. The PPS No. is not a national identity. It is designed to be used
as a service enabler for the purposes of public service administration. The
number forms an essential element of your Public Service Identity (PSI)
which provides a speedy efficient means of establishing identity for the
purposes of access to and dealings with all public service bodies. The PSI
comprises the PPS No. and a defined set of personal data. Your PSI is to
be used exclusively in dealings with public bodies or with agents acting on
behalf of public bodies.
Available online at http://www.welfare.ie/topics/ppsn/faq.html
Page 30 of 41
Revenue Commissioners
SP – IT/3/07
Appendix B
Extract from Article 18 of Ireland-USA Double Taxation Agreement
Article 18 Pensions, Social Security, Annuities, Alimony and Child Support
***
5. For the purposes of this Convention, where an individual who is a member of a
pension plan that is established and recognized under the legislation of one of the
Contracting States performs personal services in the other Contracting State,
contributions paid by the individual to the plan during the period that he performs
personal services in the other Contracting State shall be deductible in computing
his taxable income in that State within the limits that would apply if the
contributions were paid to a pension plan that is established and recognized
under the legislation of that State, and any payments made to the plan by or on
behalf of his employer during that period shall not be treated as part of the
employee's taxable income and shall be allowed as a deduction in computing the
profits of his employer in that other State. The provisions of this paragraph shall
not apply unless:
(a) contributions by or on behalf of the individual to the plan (or to another
similar plan for which this plan was substituted) were made immediately before
he visited the other State;
(b) the individual has performed personal services in the other State for a
cumulative period not exceeding five calendar years; and
(c) the competent authority of the other State has agreed that the pension
plan generally corresponds to a pension plan recognized for tax purposes by that
State.
The benefits granted under this paragraph shall not exceed the benefits that
would be allowed by the other State to its residents for contributions to a pension
plan recognized for tax purposes by that State.
6. Where, under paragraph 5, contributions to a foreign pension plan are
deductible in computing an individual's taxable income in a Contracting State and,
under the laws in force in that State, the individual is, in respect of income or
gains, subject to tax by reference only to the amount thereof which is remitted to
or received in that State, and not by reference to the full amount of such income
or gains, then the deduction which would otherwise be allowed to the individual
under paragraph 5 in respect of such contributions shall be reduced to an amount
that bears the same proportion to such deduction as the amount remitted bears
to the full amount of the income or gains of the individual that would be taxable
in that State if the income or gains had not been taxable on the amount remitted
only.
Full text available online at
http://www.revenue.ie/services/tax_info/dtas/usa.htm
Page 31 of 41
Revenue Commissioners
SP – IT/3/07
Appendix C
Extract from Article 17A of Ireland-UK Double Taxation Agreement
ARTICLE 17A PENSION SCHEME CONTRIBUTIONS
***
1) Subject to the conditions specified in paragraph
(2) of this Article, where an
employee
("the employee"), who is a member of a pension scheme which has
been approved or is being considered for approval under the legislation of one of
the Contracting States, exercises his employment in the other Contracting State:
(a) contributions paid by the employee to that scheme during the period that
he exercises his employment in that other State shall be deductible in computing
his taxable income in that State within the limits that would apply if the
contributions were paid to a pension scheme which has been approved under the
legislation of that State; and
(b) payments made to the scheme by or on behalf of his employer during that
period:
(i) shall not be treated as part of the employee's taxable income, and
(ii) shall be allowed as a deduction in computing the profits of his employer, in
that other State.
(2) The conditions specified in this paragraph are that:
(a) the employee is employed in the other Contracting State by the person who
was his employer immediately before he began to exercise his employment in
that State or by an associated employer of that employer;
(b) the employee was not a resident of that State immediately before he
began to exercise his employment there;
(c) at the time that the contributions referred to in paragraph
(1) (a) of
this Article are paid, or the payments referred to in paragraph
(1) (b) of this
Article are made, to the scheme the employee has exercised his employment in
that State for:
(i) less than ten years where he was a resident of the first-mentioned
Contracting State immediately before he began to exercise his employment in the
other Contracting State, or
(ii) less than five years in other cases.
(3) For the purposes of this Article:
(a) the term "a pension scheme" means a scheme established in relation to an
employment in which the employee participates in order to secure retirement
benefits;
Page 32 of 41
Revenue Commissioners
SP – IT/3/07
(b) employers are associated if
(directly or indirectly) one is controlled by
the other or if both are controlled by a third person; and the term "control", in
relation to a body corporate, means the power of a person to secure:
(i) by means of the holding of shares or the possession of voting power in or in
relation to that or any other body corporate, or
(ii) by virtue of any powers conferred by the articles of association or other
document regulating that or any other body corporate,
that the affairs of the first-mentioned body corporate are conducted in
accordance with the wishes of that person, and, in relation to a partnership,
means the right to a share of more than one-half of the assets, or of more than
one-half of the income, of the partnership.
***
Full text available online at http://www.revenue.ie/services/tax_info/dtas/uk.htm
Page 33 of 41
Revenue Commissioners
SP – IT/3/07
Appendix D
Migrant Member Relief
Relief is available for contributions paid on or after 1 January 2005 by a relevant
migrant member who comes to the State and who wishes to continue to
contribute to a pre-existing ’qualifying overseas pension plan’ (see paragraph 3)
concluded with a pension provider in another EU Member State.
The expression ’overseas pension plan’ includes both occupational pension
schemes and personal pension plans (products similar to PRSAs and RACs), but
excludes any state Social Security scheme (i.e. a system of mandatory protection
put in place to provide a minimum level of retirement income or other benefits).
Conditions
The migrant member must meet certain conditions to be a ’relevant migrant
member’ and to qualify for relief for contributions made to a qualifying overseas
pension plan.
The individual must•
be a resident of the State,
•
have been a member of the plan on taking up residence in the State,
•
have been a resident of another EU Member State at the time he or she
first became a member of the plan and must have been entitled to tax
relief on contributions to the plan under the law of that Member State,
•
have been resident outside of the State for a continuous period of 3 years
immediately before becoming a resident of the State, and
be a national of an EU Member State or, not being such a national, must
have been resident in an EU Member State (other than the State)
immediately before becoming a resident of the State.
•
Where an individual does not satisfy the 3 year test but all other conditions are
met, the case should be referred to Financial Services (Pensions) Business Unit,
Large Cases Division.
The normal rules (183 day rule and the 280 day look back rule) for determining if
an individual is resident in the State should be applied when considering if an
individual is resident in the State for the purposes of migrant member relief.
The term ’resident’ in the context of another EU Member State means:
•
•
In the case of an EU Member State with whom Ireland has a Double
Taxation Treaty, that the individual is regarded as being a resident of
that State under the relevant treaty,or
In any other case, that the individual is by virtue of the law of that State
a resident of that State for the purposes of tax.
Overseas Pension Plan – Information
The relevant migrant member must irrevocably instruct the administrator of the
overseas pension plan to provide the Revenue Commissioners with any
information, in relation to payments under the plan that they may reasonably
require.
In addition, on an annual basis, he or she must obtain from the administrator a
’certificate of contributions’ setting out contributions made by the migrant
Page 34 of 41
Revenue Commissioners
SP – IT/3/07
member to the plan, and where relevant, contributions to the plan, made by the
migrant member’s employer in the State.
Relief for contributions
Where the conditions set out above in relation to the overseas plan and the
migrant member are met, relief may be granted in respect of contributions paid
under the overseas plan on foot of a completed form Overseas Pension 1.
The claim form must be completed and signed by both the individual claiming the
relief and the administrator of the overseas pension plan.
Relief is subject to the same age based relief limits as apply to relief for individual
contributions to Irish approved pension plans (occupational, PRSA, RAC). The
combined remuneration/earnings threshold of €254,000 also applies.
An employer is authorised to operate the ’net pay arrangement’ in respect of
allowable contributions to a qualifying overseas pension plan where such
contributions are deducted from the employee’s emoluments.
Note -Prior to the introduction of Migrant Member Relief secondees from the
United Kingdom could avail of relief under the terms of the protocol to the
Ireland/UK Double Taxation Agreement. The protocol may still be of relevance to
migrant workers coming to the State from a third country.
Page 35 of 41
Revenue Commissioners
SP – IT/3/07
Appendix E
[Extract from Chapter 17 of Revenue Pensions Manual – Overseas Pension
Schemes]
Overseas Employer - Overseas Scheme
17.5
An employee who was a member of an Overseas Employers Scheme before being
transferred to Ireland to work for an associated employer may remain in that
scheme and get relief on his contributions against his Irish Tax provided that (i)
The secondment is for a period of less than 10 years.
(ii)
The scheme is a Trust Scheme.
(iii)
The benefits to be provided by the Overseas Scheme are within Irish
approvable limits.
Page 36 of 41
Revenue Commissioners
SP – IT/3/07
Appendix F
Criteria & Guidelines on Permanent Establishment
(PE)
Introduction
The profits of an enterprise of a country with which Ireland has a double taxation
convention are generally taxable in the State only where the enterprise has a
Permanent Establishment (PE) here. This note sets out the criteria for
determining the existence of a PE, and gives guidelines on how these
criteria are applied in the construction industry.
Given the level of cross border business activity, particular reference is made to
the Ireland/UK Double Taxation Convention. The text of Article 5 of the
Ireland/UK Convention is given at the end of this Appendix.
Definition
Article 5(1) of the Ireland/UK
establishment as being
Convention
defines
the
term
permanent
“a fixed place of business in which the business of the enterprise is wholly
or partly carried on”.
Article 3(1)(i) of the Convention provides that, “enterprise of a Contracting State”
and “enterprise of the other Contracting State” mean respectively
• An enterprise carried on by a resident of a Contracting State
and
• An enterprise carried on by a resident of the other Contracting State.
Article 5(2) of the Convention contains a list of examples of what is generally
regarded as constituting a PE. However, the examples listed are PEs only where
they fall within the terms of the definition in Article 5(1).
Article 5(3) of the Convention contains a list of examples of what is not regarded
as constituting a PE.
Criteria to determine if a PE exists
Whether or not a PE exists is a question of fact. Each case must be considered on
its own facts. Below are guidelines for determining whether a PE exists, i.e.,
whether there is “a fixed place of business in the State in which the business of
the enterprise is wholly or partly carried on”.
There must be a place of business
A place, though normally a particular portion of space, is to be read in the context
of it being used to define “establishment”. The term “place of business”,
therefore, means all the tangible assets used for carrying on the business. It
covers any premises, facilities or installations used for carrying on the business
whether or not they are used exclusively for that purpose. Thus, a place of
business may exist where no premises are available or required for carrying on
the business of the enterprise and it simply has a certain amount of space at its
disposal.
The place of business may be situated in the business facilities of another
enterprise. It may be owned or rented by or be otherwise at the disposal of the
business.
Page 37 of 41
Revenue Commissioners
SP – IT/3/07
The place of business must be fixed
• The place of business must be established at a certain place. In this regard it is
necessary that a link exists between the place of business and a specific
geographical point.
• For equipment to constitute a PE, it must remain on a particular site but does
not have to be fixed to the soil on which it stands. Where roads are being built,
canals constructed etc. and the activities performed at each particular spot are
part of a single project, the project is regarded as a PE.
• The place of business must have a certain degree of permanency. Mere
business relations with enterprises or other customers in the contracting State
do not give the requisite degree of permanency. Similarly, a place of business
which is of a purely temporary nature cannot constitute a PE, e.g. a once-off
stall at a trade exhibition. A place of business which is not of a purely
temporary nature can be a PE even if it exists in practice only for a very short
period of time because of
- the special nature of the activity (e.g. a building site), or
- as a consequence of special circumstances (e.g. death of the
taxpayer, investment failure), it was prematurely liquidated.
The business must be wholly or partly carried on in the fixed place of
business
For a place of business to constitute a PE, the enterprise using it must carry on its
business wholly or partly in it. The activity need not be of a productive character.
Interruptions of operations encountered in the normal course of the business of
an enterprise do not affect the permanence test, provided the business activities
are resumed at the same place. Operations must be carried out on a regular
basis. For example, a space in a market place could be a PE provided it is
occupied regularly over a period.
Agents
Article 5(4) of the Ireland/UK Convention deals with dependent agents. A
dependent agent of a UK enterprise who has and habitually exercises in the
State, an authority to conclude contracts in the name of the enterprise,
constitutes a PE here.
Dependent
The agent must be dependent on the enterprise he/she represents. He/she must
not have independent status of the kind referred to in Article 5(6) (e.g. brokers,
general commission agents). An agent who is bound to follow instructions relating
to the business is dependent on the enterprise. Employees of an enterprise are
always dependent agents. An agent must have power to bind the enterprise.
Authority to Conclude Contracts
The dependent agent must have authority to conclude contracts in the name of
the enterprise he/she represents. Whether or not an agent has such authority is a
question of fact and is normally decided against the background of the economic
situation. If there are valid reasons for the enterprise to reserve its right to
conclude contracts itself (e.g. where major contracts are involved) the agent may
be considered not to have an authority to conclude contracts. If the agent has
authority to negotiate all elements of a contract in a way which is binding on the
enterprise, the agent is regarded as exercising his/her authority in the State,
even if formal signature of the contract is made by some other person outside the
State. The authority could be restricted to specific lines of business within the
enterprise’s overall business activities. If this is the case, the profits attributable
Page 38 of 41
Revenue Commissioners
SP – IT/3/07
to the PE would be restricted to profits arising from business contracted by the
agent. Direct transactions by the enterprise would be disregarded for the
purposes of determining profits attributable to the PE.
Habitual Exercise
The agent must habitually exercise in the State his/her authority to conclude
contracts in the name of the enterprise. There must be a certain degree of
permanence. An agent would not constitute a PE on the basis of the conclusion of
a single contract. The frequency with which an agent concludes contracts will
amount to habitual exercise if it corresponds with what is normal in the line of
business concerned. In cases of doubt, the continuity of the agent’s exercise of
authority should be measured by application of the same criteria as those applied
under the general PE concept laid down in Article 5(1). It is not necessary that
the continuous activity be exercised throughout by the same person. It is
sufficient for the post of dependent agent to have been established.
Residence
It is not necessary that the agent must be resident in the State. It is considered
that where the foreign enterprise is a sole trader or partnership, the sole trader
or any of the partners would be an agent for this purpose. Thus, a Northern
Ireland subcontractor who habitually concludes contracts in the State in the name
of the enterprise constitutes a PE of the UK enterprise.
Construction Industry - Existence of a PE
Under Article 8 of the Ireland/UK Convention, the profits of a UK based enterprise
are taxable in the State only if the enterprise carries on business here through a
PE situated here. While all the general principles outlined earlier apply to the
construction industry, particular difficulties arise in determining whether a PE is in
existence in construction cases. This is especially so where the question to be
determined is whether, in a particular case, a building site constitutes a PE. Given
the high number of Northern Ireland based enterprises who carry out construction
work in the State, Article 5 of the Ireland/UK Convention is regularly invoked to
establish the existence or otherwise of a PE in the State. Article 5(1) (h) of the
Convention provides that a building site or construction or installation project
which lasts for more than six months constitutes a PE.
Meat Industry -Existence of a PE
Where a contractor provides services in a meat factory, the factory premises can
constitute a PE where the requirements mentioned above under the heading
“Criteria to Determine if a PE exists” are satisfied.
Mutual Agreement Procedure
Where a person has a PE in the State, he/she is taxable here on the profits
attributable to the PE. Under the Ireland/UK Convention, a UK resident with a PE
in the State is entitled to credit in the UK for tax paid in the State in respect of
profits attributable to the PE. If the UK Inland Revenue rule that the person does
not have a PE in this State, credit for Irish tax will not be allowed against the
persons UK tax liability. In this event, the person should request a review under
Article 24 of the Convention (i.e. mutual agreement). Under the terms of Article
24, the two authorities will arrive at a mutual determination regarding the
existence of a PE in the State. The request for such a review should be made to
the Revenue Authority of the State in which the person is resident.
Page 39 of 41
Revenue Commissioners
SP – IT/3/07
ARTICLE 5 OF THE IRELAND/UK CONVENTION
Article 5 Permanent Establishment
(1) For the purposes of this Convention, the term "permanent establishment"
means a fixed place of business in which the business of the enterprise is
wholly or partly carried on.
(2) The term "permanent establishment" shall include especially:
(a) a place of management;
(b) a branch;
(c) an office;
(d) a factory;
(e) a workshop;
(f) a mine, oil well, quarry or other place of extraction of natural
resources;
(g) an installation or structure used for the exploration of natural
resources;
(h) a building site or construction or installation project which lasts for
more than six months;
(3) The term "permanent establishment" shall not be deemed to include:
(a) the use of facilities solely for the purpose of storage, display or
delivery of goods or merchandise belonging to the enterprise;
(b) the maintenance of a stock of goods or merchandise belonging to
the enterprise solely for the purpose of storage, display or delivery;
(c) the maintenance of a stock of goods or merchandise belonging to
the enterprise solely for the purpose of processing by another
enterprise;
(d) the maintenance of a fixed place of business solely for the purpose
of purchasing goods or merchandise, or for collecting information,
for the enterprise;
(e) the maintenance of a fixed place of business solely for the purpose
of advertising, for the supply of information, for scientific research
or for similar activities which have a preparatory or auxiliary
character, for the enterprise.
(4) A person acting in a Contracting State on behalf of an enterprise of the
other Contracting State - other than an agent of independent status to
whom the provisions of paragraph (6) of this Article apply - shall be
deemed to be a permanent establishment in the first-mentioned State if
Page 40 of 41
Revenue Commissioners
SP – IT/3/07
he has, and habitually exercises in that State, an authority to conclude
contracts in the name of the enterprise, unless his activities are limited to
the purchase of goods or merchandise for the enterprise.
(5) A person carrying on activities offshore in a Contracting State in connection
with the exploration or exploitation of the sea bed and sub-soil and their
natural resources situated in that Contracting State shall be deemed to be
carrying on a business through a permanent establishment in that
Contracting State.
(6) An enterprise of a Contracting State shall not be deemed to have a
permanent establishment in the other Contracting State merely because it
carries on business in that other State through a broker, general
commission agent or any other agent of an independent status, where
such persons are acting in the ordinary course of their business.
(7) The fact that a company which is a resident of a Contracting State controls
or is controlled by a company which is a resident of the other Contracting
State, or which carries on business in that other State (whether through a
permanent establishment or otherwise), shall not of itself constitute either
company a permanent establishment of the other.
Page 41 of 41